How Lightning Damage Affects Insurance Markets

Robert Bates, Head of Claims, investigates the numerous impacts of lightning on renewable energy projects.

Q: What causes lightning?

Lightning is essentially electricity in the atmosphere. Meteorologists can get bogged down in semantics – when is a lightning strike a lightning stroke? Shouldn’t we be calling them lightning flashes? – but from an insurance perspective, when we’re talking about lightning, we’re talking about electrostatic discharge between the atmosphere and ground.

The distribution of lightning is directly related to the Earth’s climate, which is influenced by insolation. The warmer it is, the more likely lightning activity becomes – and this will only become more frequent as the earth heats up due to climate change. Lightning activity is expected to increase by 12% for every 1°C of warming, and countries like the United States could see a 50% increase in the number of strikes by the end of the century. In a climate with double the amount of CO2, we may see fewer lightning storms overall, but 25% ‘stronger’ – i.e. with more strikes – storm becoming the norm, representing a massive increase in lightning exposure to life and property.

Q. How can lightning affect wind and solar projects?

The raw materials that go into wind and solar projects are attractive to lightning. Wind turbines are predominantly made of steel, a highly conductive material. Moreover, for several years suppliers have been using carbon fibre in blades, which is both thermally and electrically conductive. Turbines are also becoming taller, and “up lightning” is a more and more frequent phenomenon whereby the turbine’s own electric field can meet an otherwise ‘off target’ lightning strike, leaping off the tip of the blade and causing damage. In any case, lightning to blades is one of the most common kinds of claim for wind projects.

A complex claim scenario can sometimes arise where latent defects in the blade exacerbate the damage inflicted by lightning. If such blades hadn’t been defective, would there have been a loss at all? Under the LEG defect clauses, much of the claim could be excluded if determined to be a defect claim. But what would the proximate cause of loss be in these cases? Provided the presence of the defect didn’t itself attract the lightning strike, it’s probable insurers would ultimately concede that the proximate cause is the lightning, and therefore covered.

Generally speaking, solar panels are less susceptible to lightning, but are commonly located in large areas with high insolation, elevated components, and a lot of raw materials attractive to lightning. This still makes lightning a significant risk for solar energy projects.

Q. What are suppliers doing to reduce risk?

Lightning is a frequent cause of loss for renewable energy projects, particularly wind turbines. Suppliers have attempted to make components more resilient, but in the face of a changing climate, demands for bigger and bigger turbines, and extreme pressure to reduce the levelized cost of energy, the results have been patchy, at best.

Wind turbines are typically equipped with lightning protection systems (LPS). These are usually comprised of copper conductors in the blades that transmit the charge to earth. Recent losses appear to indicate that, in some new designs the LPS itself functions correctly, but the surrounding blade design (more specifically, the cross-directional carbon shear web(s) around it) can negatively impact their effectiveness. Investigations continue. But the increased height of the turbines, choice of raw materials and climate change all exacerbate the risk.

The typical lightning strike produces 55 kWh of energy. According to a recent investigation, lightning strikes may have more power than previously thought. Significant strikes can be multiples of the average. This means that a powerful lightning strike could be 20 times more powerful than an average one.

For solar, basic grounding, surge- and anti-fire protection systems are available. UL or ETL labels can provide some certainty that components are certified to relevant design codes. In the coming years, however, we anticipate greater emphasis on lightning protection.

Q. How does lightning damage influence the insurance market?

If the frequency and severity of lightning strikes continue to increase, we can expect higher deductibles and higher pricing. Some locations may even be deemed so exposed to lightning, insurers refuse to cover that peril. This can lead to conflict with lenders, whose finance agreements may stipulate coverage for lightning that may no longer be commercially available. And if a particular blade or LPS design repeatedly suffers similar kinds of damage, exacerbated by design defects, insurers may also exclude coverage for lightning for those designs. In summary, it may no longer be possible to transfer as much of the lightning risk as before, and insurers may seek to reallocate risk onto suppliers.

We’re also likely to see more underwriters asking more questions at the proposal stage. International standards, such as IEC 61400-24, are increasingly being referred to, and we might see these enter specific coverage and wording requirements.

Q. What solutions can NARDAC provide for clients affected by lightning damage?

As an insurance broker specialized in renewables, with broad experience across risk advisory, insurance broking, claims and underwriting – not to mention our team’s hands-on experience actually building these projects – NARDAC is uniquely-positioned to devise tailored risk management solutions that can meet the challenge of a constantly-evolving risk landscape. The currently available policy forms for this sector cover lightning in accordance with lenders’ requirements, but our clients see real benefit from our experience across industry, both in insurance terms, finding bespoke solutions for highly-exposed locations, and in engineering. New products are also being worked on, such as parametric insurance, that might provide a clearer basis of coverage than traditional insurance.

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